Thursday, February 28, 2008

Why Trading Might Be the Most Difficult Job in the World

Reader and trader Don Chase emailed me with a perceptive observation, noting his belief that trading might just be the most difficult job in the world. He asks:

How many guys do you know who can accept being wrong?

How many guys do you know who can be wrong and lose money?

How many guys do you know who can be wrong. lose money and not feel bad?

How many guys do you know who can be wrong, lose money, not feel bad and reverse their position?

How many guys do you know who can be wrong, lose money, not feel bad, and reverse their position quickly?

Don's point is that trading requires an unusual combination of emotional resilience (the ability to tolerate being wrong) and mental flexibility (the ability to use losses as information and quickly change one's position in the markets).

Many people have a need to be right. That makes it difficult to quickly accept losses, and it makes it especially difficult to flip one's views. The best traders don't have a need to be right, and in fact they readily admit that there's many times they're wrong.

There's a different reason why trading might be one of the world's most difficult occupations: the rules of the game are always changing. In most performance activities, from sports to chess, the rules don't change from year to year. Market patterns, however, are continually shifting: trends change, volatility changes, and historical patterns that worked at one time suddenly fail during the next time period (a phenomenon that has recently tripped up several quant funds).

Because markets are ever-changing, success is never assured. Indeed, it's not at all unusual for very successful traders to re-enter a learning curve when market conditions change radically. It takes a very secure person to be able to accept those returns to the learning curve, and it takes a highly conscientious person to keep losses down when market patterns undergo a major shift.

Don has a great point. The average person loves job security; trading offers none. The average person loves success; trading invariably ensures periods of loss. The average person wants to be right; plenty of great traders are wrong half the time. Trading can be a tremendous challenge and a highly rewarding activity, but to get to that point, you have to be emotionally wired differently from the average person.


Resilience and the Courage of Your Convictions

Resilience and the Uncompromised Life


klax said...

Thank you Don Chase for your insight and as always thank you Dr Brett.

Jim said...

No might about it.

There are surely other difficult endeavors , but trading, it finds your weak spots with unerring precision.

Here's a favorite of mine, oft repeated, even though I should know better by now.

I see a pattern on the charts or Level 2 that tells me a stock is a short. I like to short. Sue me.

For some reason I'm frequently early, not by much, but enough so that the 10-20 minutes of squeeze (seems more painful than it used to be with pennies, like death by a thousand cuts) , is enough to make me forget the setup and decide the stock is not coming in.

So of course the stock starts to drop, and I cover just below where I shorted, glad to be done with it. They say the market gives you what you want. Well , if you want to flat the trade....

Many of these continue straight down or nearly so,hitting the original target or better without me.

Now I've done this enough times to know this is a very bad habit, but it's extremely hard to overcome.

Trading is hard.

Krasimir said...

Outstanding post!

Thank you both Brett and Don.

Eyal said...

Good post. I went through this re-entering a learning curve this year, maybe still am. The words shock, immense mental pressure, and countless of hours of research come to mind. I'm just in the beginning of my career as a fulltime trader, but I can say that it's definitely one of toughest things I've ever had to deal with.

Anatrader said...


You hit the nail on the head! trading is the hardest profession and the sooner novice traders appreciate this the easier it will be to go forward.

Even with years of experience, armed with the best trading arsenal, one can never be too sure which way the market will go.

Take the case of the US Presidental Year Cycle (2008) or Leap Year (Feb 29 08) Phenomenon for this year. After factoring in all these, we have Chairman Bernanke coming to the rescue of the Stock Market and doing a Humphrey-Hawkins session lately.

Then we have to reckon with the wrath of the Acts of God.

I can't imagine any other profession whose success is so dependent on so many factors.

Thank God I am not aiming to be a Pro only to make enough to maintain my style of living since we do not look to social security in our government.

Bryan said...

Doc, trading is one of the most interesting jobs in the world and at times it can be one of the most frustrating but surely there are more difficult jobs out there?

- trying to be a really good teacher in an inner city school that is poorly resourced.
- working to reduce the impact of homelessness or HIV in a country like South Africa.
- being an opposition politician in Zimbabwe.
- being a successful manager for the England football team (history suggests this one is near impossible).

Give me peace and quiet, a lot of stuff to read about markets and companies and a trading platform any time.

First said...


Just want to let you know...I am a HUGE fan of yours and have been reading your blog and books for longtime.

Want to thank you for all you do.

God bless you and your family.

Hawkeye said...

Chase has it right.

Fear and greed never change. Patterns never change. We change as we lose our objectivity. When things are working well in any given system, look out. We always set ourselves up to be taken.

John Forman said...

I work for an analytic service as my profession. In this environment the whole issue of being right or wrong is notched up even more. We are paid to provide opinions and those views often find their way into the public domain. Basically, an analyst reputation is at stake pretty much every time he/she makes a call. That's why you'll often see analysts either be very wishy-washy (don't want to get pinned down) or slow to change their views (don't want to be wrong).

I've had discussions with my peers on many occassions. My approach to it all is to take a very trading oriented view - I know not every call I make is going to be right, but if I present good, well reasonsed opportunities to my readers things will play out positively in the long run.

Joshua "MauiTrader" Hayes said...

Great post!! No other way to put it.

Joshua Hayes

Jim Cole said...

Trading for a living is certainly difficult, and only appeals to a small group of people, but there are plenty of other jobs where your judgment is often wrong, and there's a lot of pressure to get it right quickly. But in my experience, a job where your mistakes directly affect others has much more pressure than trading your own account.

For instance, in my former profession of software development, a programmer is often wrong about the cause of a bug while they're debugging a problem. When that happens, they have to quickly admit that they're wrong, and come up with a new hypothesis immediately.

And if you're involved with a mission-critical application, you can sit there being repeatedly wrong about the cause while the CIO of a Fortune 100 company keeps reminding you that the CEO is eager to hear that the problem that has shut their business down has been fixed, and that they're losing $1M every hour the system is offline. And often as not, the problem that took them offline was due to a mistake you personally made a while back that has just now reared its ugly head.